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The Impact of Dynamic Capabilities on Sustainable Competitive The Impact of Dynamic Capabilities on Sustainable Competitive

Advantage in the Pharmaceutical Sector in Egypt Advantage in the Pharmaceutical Sector in Egypt

Albert Naiem Naguib Marcyrl Pharmaceutical Industries

Eahab Elsaid University of Windsor

Abdel Moneim Elsaid Ain Shams University

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Recommended Citation Recommended Citation Naguib, Albert Naiem; Elsaid, Eahab; and Elsaid, Abdel Moneim. (2017). The Impact of Dynamic Capabilities on Sustainable Competitive Advantage in the Pharmaceutical Sector in Egypt. Business and Management Research, 6 (2), 1-16. https://scholar.uwindsor.ca/odettepub/127

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The Impact of Dynamic Capabilities on Sustainable Competitive

Advantage in the Pharmaceutical Sector in Egypt

Albert Naiem Naguib

Marcyrl Pharmaceutical Industries

El-Obour City, West Extension, Block 20005

Cairo, Egypt

Albertnaguib@hotmail.com

Eahab Elsaid

Finance Department

Odette School of Business

University of Windsor

401 Sunset Ave.

Windsor, Ontario, N9B 3P4

Canada

(519) 253-3000 ext. 4258

elsaid@uwindsor.ca

Abdel Moneim Elsaid,

Faculty of Commerce,

Ain Shams University,

Khalifa Mamon St., Abassya,

Cairo, Egypt

drelsaid78@yahoo.com

The Impact of Dynamic Capabilities on Sustainable Competitive

Advantage in the Pharmaceutical Sector in Egypt

Abstract

This study examines the relationship between dynamic capabilities (experience, routine, skills, firm characteristics,

knowledge and technology) and competitive advantage sustainability in the Egyptian pharmaceutical sector. The

data was collected using primary and secondary data sources. Primary data was collected from questionnaires

distributed to 160 top managers in 20 pharmaceutical firms. The secondary data about pharmaceutical firms like

rankings, revenues and market share was collected from external sources such as Intercontinental Marketing Service

(IMS). The questionnaires examine six independent variables based on a five-scale Likert scale. The methodology

used in the study is non-probability sampling (judgmental sampling), Cronbach’s alpha reliability coefficient and

Chi-square tests. The results support the notion that there is a significant relationship between four of the six

dynamic capabilities (experience, skills, firm characteristics and knowledge) and the competitive advantage

sustainability for pharmaceutical firms in Egypt. Designing the questionnaire and formulating the questions to target

the required field was challenging, given that the topic is dynamic and the business scene in Egypt has witnessed

drastic political changes since January 2011. The study should assist pharmaceutical companies in Egypt in directing

their investments properly and in determining the weaknesses in their dynamic capabilities that need to be

addressed.

Keywords: Egypt, pharmaceutical sector, dynamic capabilities, competitive advantage, Resource Based theory

1. Introduction

Many theories have been proposed to explain what causes firms to have a sustainable competitive advantage, what

leads firms to perform well in the market and occupy a superior position among rivals. There are major themes

which emerge repeatedly throughout the literature. Two of these themes are: (1) resources and how they help to

build a sustainable competitive advantage and (2) dynamic capabilities, such as, experience, routine, skills, firm

characteristics, knowledge and technology and how these capabilities affect firm performance. Although the

literature presents these themes in a variety of contexts, this paper will primarily focus on the role of the dynamic

capabilities in building a sustainable competitive advantage.

Andrews (1971) introduced the concept of core competence and described it as what the firm can do specifically

well. Frery (2006) described core competencies as the basic building blocks for a firm’s corporate strategy. Prahalad

and Hamel (1990) explained that core competencies are like the roots of a tree that provide it with nutrition, life and

stability. Mahoney and Pandian (1992) indicated that a firm can achieve profits, not because of its unique resources,

but because of its distinctive competences and the usage of its resources. Littler (2005) highlighted two essential

qualities of core competence. First, a core competence must be a capability of a firm rather than the limited

ownership of a resource. Second, a core competence should help the firm achieve its goals, for these goals are

central to a firm’s value-generating activities.

Rouse and Dallenbach (1999) indicated that, for the past two decades, the concept of competitive advantage has

been central to the practice and study of strategic management. Porter (1985) argued that a firm’s ability to

outperform its rivals lay in its ability to translate its competitive strategy into a competitive advantage. Barney

(1991) argued that the competitive advantage can be achieved if the firm’s strategy is value added and difficult to

imitate by rivals in the present or near future. Eisenhardt and Martin (2000) stated that sustainable competitive

advantage occurs when the firm’s dynamic capabilities are not only valuable and rare, but also inimitable. Porter

(1991) claimed that a firm’s possession of a resource alone will never guarantee competitive advantage. In the same

vein, Ambrosini et al., (2009) stated that in order for a resource to generate value, it must be utilized by the firm in a

distinctive organizational process or routine.

2. Literature Review

2.1 Resource Based Theory

The Resource based theory stipulates that companies have collections of resources that result in competitive

advantages (Barney, 1991). The more unique and inimitable those collections of resources, the better the firms’

competitive advantage (Shrader et al., 1997). Penrose (1959) classified resources as land, equipment, labor,

capabilities, knowledge, and organizational capital either tangible or intangible. Therefore firms can generate rents

when resources are firm specific, and the existence and maintenance of rents depends on the difficulty of

competitors to attain, imitate, or develop those resources. Barney (1991) classified firm resources into three

categories: physical resources, organizational resources and human resources.

Andrews (1971) and Porter (1985) came up with two models in the field of strategic human resource management

and competitive advantage. The first one is the resource based model “internal analysis.” The resource-based model

examined the link between the internal characteristics of a firm and firm performance and it stated that the firm’s

resources must be valuable, rare, inimitable and non-substitutable in order for the firm to possess a distinct

competitive advantage. The second model is the environmental model of competitive advantage “external analysis”.

2.2 Dynamic capabilities

Liqin et al., (2010) emphasized the importance of both resources and capabilities and they formulated a “capability-

based model” as an evolved concept of the resource-based theory. The capability-based model proposes that the

success of an organization’s strategy fully relies on the ability of transforming the resources to a competitive

advantage. Therefore it actually moves the literature a step closer to recognizing how organizations evolve and

sustain their sources of competitive advantage. Makadok (2001) differentiated between capabilities and resources

and defined capabilities as organization specific resources, to help leverage profit and performance.

Teece (1998) defined dynamic capabilities as “the organization's tendency to integrate, build and reallocate its

internal and external resources to cope with changing environments”. More recently, Eisenhardt and Martin (2000)

stated that dynamic capabilities contain specific, strategic and organizational processes like product development

and strategic decision making that create value for firms within dynamic markets by manipulating resources into

new value-creating strategies. Bowman and Ambrosini (2003) coined the “dynamic capability approach” and

focused attention on the firm’s ability to renew its resources in line with changes in its environment. Sitkin (1992)

states that mistakes also play a role in the evolution of dynamic capabilities; small losses, more than either successes

or major failures, contribute to effective learning.

Winter (2003) identified the dynamic capabilities hierarchy as including: (1) experience, (2) routine, (3) skills, (4)

firm characteristics, (5) knowledge and (6) technology. These six capabilities are part of this study’s research model.

2.2.1 Experience

King and Tucci (2002) argue that experience leads to habitual routines that reinforce existing practices and assist

adaptation. They classified experience into two styles: (i) static experience which is gained from further elaboration

of existing structures, positions, and strategies and (ii) transformational experience which is gained from changing

these attributes. The evolution of dynamic capabilities is also affected by the pace of experience. Argote (1999)

states that experience which was built rapidly can confuse managers and lead to hindering the transformation of this

experience to useful learning. On the other hand, when the experience accumulation becomes irregular it can lead to

forgetting what was learned and consequently cause little knowledge accumulation.

2.2.2 Routine

Ray et al., (2004) defined the routine or business processes as the activities that organizations engage in order to

achieve their targets. Zollo and Winter (2002) found that dynamic capabilities are gained and perfected through

activities were the organizations produce and modify their operating routines for the sake of development. Barney

(1991) stated that higher-order routines, which are more difficult to transfer, may help firms to sustain a competitive

advantage. While Kogut and Zander (1992) argued that higher-order routines are difficult for rivals to imitate

because they are socially complex. Aime et al., (2010) show that hiring key employees from a competitor that

possesses an advantageous set of routines will enhance the competitive position of the hiring organization and in

turn improve the organization’s performance.

2.2.3 Skills

Robles (2012) defined skills as the individual's ability to do something well. Porter (1987) argued that transferring

skills in organizations leads to competitive advantage. Audea et al., (2005) found that there is a strong relationship

between firm performance and employee training. Browning et al., (2009) emphasized the importance of training to

build skills and knowledge inside the organization.

2.2.4 Firm characteristics

Firm characteristics play a crucial role in building an organization’s competitive advantage. Winter (2003) and

Bharadwaj et al., (1993) indicated that firm characteristics include, firm size relative to competitors (e.g., market

share and customer base), business portfolio composition, and the firm’s order of entry into the market. Audea et al.,

(2005) state that larger firms tend to be more associated with higher levels of overall firm performance. Bharadwaj

et al., (1993) claimed that large organizations possess more of a competitive advantage than the small organizations.

On the contrary, Chen (1996) argued that the small size firms are better able to cope with the changing

environmental dynamics than large firms since they are more fixable and agile. Bharadwaj et al., (1993) emphasized

the importance of a firm’s order of entry into a market and concluded that the pioneers or first-movers have higher

market shares than late entrants. Bharadwaj et al., (1993) also indicate that the number of products that the firm

produces does affect the firm’s financial and market position among rivals.

2.2.5 Knowledge

Hansen (1999) indicated that knowledge is a crucial dynamic capability in industries like pharmaceuticals and that

the transfer of knowledge helps in the reallocation of resources within organizations which is essential for an

effective strategy and superior performance. Williams and Leask (2011) argued that knowledge involves a human

element factor that helps in building a competitive advantage in an organization. The human element includes

motivating employees so that they are willing and able to learn and share knowledge. This will be ultimately

reflected in customer satisfaction which in turn will build trust and loyalty. The human element contains a number of

processes, such as capturing, transferring, sharing, applying and creating new knowledge within employees. Azarian

et al., (2013) indicated that the knowledge transfer among employees inside the organization or the transfer of

knowledge from one group of employees to the next enhances productivity.

2.2.6 Technology

Utterback and Abernathy (1975) introduced the concept of “dominant design” which proposed that the emergence of

a dominant design is the cornerstone in an industry evolving and changes the way that organizations compete in a

particular industry. A dominant design can be a new product or a set of new features on an already existing product.

Technology allows organizations to manage their functions to create a competitive advantage that allows the firms

to create a dominant design. Foster (1986) highlighted the importance of the technology and how it affects the firm

performance and discussed “the technology S-curve” that helps in understanding the shape of the technology

lifecycle. Davenport et al., (2003) emphasized that firms should have a technology strategy that considers the

emergence of new technologies, that changes to cope with market dynamics and that adjusts based on the nature of

competition with the firms’ competitors.

2.3 Overview of the Egyptian pharmaceutical sector

The sales value in the Egyptian pharmaceutical sector from January 1st, 2015 to December 31st, 2015 according to

the Egyptian stock market magazine report issued on March 9th, 2016, was 4.1 billion U.S. dollars with a 4% growth

from the previous year. The report discovered that 20 pharmaceutical firms accounted for almost 55% of the

pharmaceutical market share in Egypt. Of those 20 firms, 11 are multinational firms and 9 are Egyptian firms.

Moreover the report indicated that of those 20 pharmaceutical firms the first 10 firms on the list control 38% of the

market share while the other 10 firms control 17% of the market share. The Egyptian pharmaceutical sector’s

growth in U.S. dollars in 2015 entered into a stage of risk which is around 4% according to Intercontinental

Marketing Service (IMS, 2015). This is due to the increase in the value of the U.S. dollar against the Egyptian pound

and the stability of the prices of pharmaceutical products which in turn led to the erosion of corporate profitability.

3. Data Collection and Methodology

3.1 Research question

The research question for this study is as follows: To what extent do dynamic capabilities (experience, routine,

skills, firm characteristics, knowledge and technology) inside the organizations affect the building of competitive

advantage sustainability in the pharmaceutical sector in Egypt.

3.2 Hypotheses

The purpose of this paper is to help determine which of the dynamic capabilities (experience, routine, skills, firm

characteristics, knowledge and technology) enable the pharmaceutical firms in Egypt to create and/or maintain their

competitive advantage sustainability. To achieve the objectives of the study, the following hypotheses have been

formulated:

H1: There is a significant relationship between the “experience” dynamic capability and the

competitive advantage sustainability in Egyptian pharmaceutical firms.

H2: There is a significant relationship between the “routine” dynamic capability and the competitive advantage

sustainability in Egyptian pharmaceutical firms.

H3: There is a significant relationship between the “skills” dynamic capability and the competitive advantage

sustainability in Egyptian pharmaceutical firms.

H4: There is a significant relationship between the “firm characteristics” dynamic capability and the competitive

advantage sustainability in Egyptian pharmaceutical firms.

H5: There is a significant relationship between the “knowledge” dynamic capability and the

competitive advantage sustainability in Egyptian pharmaceutical firms.

H6: There is a significant relationship between the “technology” dynamic capability and the

competitive advantage sustainability in Egyptian pharmaceutical firms.

Data was collected from primary and secondary sources. The secondary data about pharmaceutical firms like

rankings, revenues and market share was collected from external sources such as the Intercontinental Marketing

Service (IMS is a multinational company responsible for collecting and analyzing data about pharmaceutical firms

with regards to their market share, revenues, sales and many other statistics about the disease area market

description and competitors).

The primary data source was the questionnaires that the authors distributed to top managers such as: Chief

Executive Officers (CEOs), Chief Financial Officers (CFOs), Chief Operating Officers (COOs), heads of

departments like HR managers, training managers, marketing managers, operations managers and IT managers. It is

important to note that designing the pattern of the questionnaire and formulating the questions to target the required

field was challenging, given that the topic is dynamic and the business scene in Egypt has witnessed drastic changes

since the political upheaval that started in January 2011. The questionnaires tackle six independent variables and

include seventeen questions using a five-scale Likert scale ranging from 1 for “strongly disagree” to 5 for “strongly

agree.”

3.3 Sample

The sample consists of 160 respondents from top management who represent the decision makers inside their

organizations. Eighty managers are from the top-ten ranked pharmaceutical firms in Egypt, and the other 80

managers are from non-ranked companies according to the International Finance Corporation (IFC, 2015) and the

Intercontinental Marketing Service (IMS, 2014/2015) definition. The selection of the respondents was based on the

“judgmental sampling” technique which is a nonprobability sampling technique (Higginbottom, 2004, Greenberg et

al., 1977). This sampling technique is also referred to as purposive sampling or authoritative sampling. The “unit of

analysis” in this study is the firm even though the decisions are made by individuals in these firms who represent

their firms' strategic decision and the “population” in this case is the top management such as: CEOs, CFOs, COOs

and heads of departments.

3.4 Questionnaire

The questionnaire is divided into six sections to investigate if the dynamic capabilities (experience, routine, skills,

firm characteristics, knowledge and technology) that are being examined have a role in building a sustainable

competitive advantage. The questions were designed to examine if applying certain functions and processes

periodically within the company would guarantee its dynamism with regards to market changes.

The questionnaire was designed in Arabic since not all of the 160 respondents in our sample are proficient in English.

The decentring method by Werner and Campbell (1970), which is commonly used in cross-cultural research (Brislin,

1976) was used to translate the questionnaire from Arabic to English. The questionnaire was originally in Arabic, and

one of the authors who is a fluently bilingual native Egyptian translated the questionnaire into English. A different

author who is also a fluently bilingual native Egyptian blindly translated the questionnaire back into the original

language, Arabic. The original and translated Arabic language questionnaires were compared and examined for

differences and it was determined that there were no differences between the two Arabic language questionnaires.

Thus, no adjustments were needed. The questionnaire is available in the appendix.

4. Findings

The study’s descriptive statistics focused on the mean as a measure of central tendency. The Likert scale measured

the sample’s responses as follow 1. Strongly Disagree; 2. Disagree; 3. Neutral; 4. Agree; 5. Strongly Agree. The

independent variables (dynamic capabilities) are ordinal in nature and Likert scale was used to order and rank them

and the dependent variable (rankings) is continuous in nature processing with time (Hair et al., 2010).

Table 1

Panel A: The descriptive statistics for the experience items

Question 1 Question 2

N Valid 160 160

Missing 0 0

Mean 4.34 4.30

Median 4.00 4.00

Standard Deviation 0.525 0.559

Minimum 3 3

Maximum 5 5

Panel B: The descriptive statistics for routine items

Question 1 Question 2 Question 3

N Valid 158 160 160

Missing 2 0 0

Mean 3.16 3.21 3.01

Median 4.00 3.00 3.00

Standard Deviation 1.145 1.193 1.113

Minimum 1 1 1

Maximum 5 5 5

Panel C: The descriptive statistics for skills items

Question 1 Question 2 Question 3

N Valid 160 160 160

Missing 0 0 0

Mean 4.08 4.10 3.69

Median 4.00 4.00 4.00

Standard Deviation 0.757 0.626 0.972

Minimum 2 2 2

Maximum 5 5 5

Panel D: The descriptive statistics for firm characteristics items

Question 1

N Valid 160

Missing 0

Mean 4.21

Median 4.00

Standard Deviation 0.788

Minimum 2

Maximum 5

Panel E: The descriptive statistics for knowledge items

Question 1 Question 2 Question 3

N Valid 160 160 160

Missing 0 0 0

Mean 4.34 4.41 4.44

Median 4.00 4.00 4.00

Standard Deviation 0.548 0.494 0.498

Minimum 3 4 4

Maximum 5 5 5

Panel F: The descriptive statistics for technology items

Question 1 Question 2 Question 3 Question 4 Question 5

N Valid 160 160 160 160 160

Missing 0 0 0 0 0

Mean 2.92 2.88 2.79 2.76 2.79

Median 3.00 3.00 2.00 2.00 2.50

Standard Deviation 1.298 1.285 1.455 1.376 1.384

Minimum 1 1 1 1 1

Maximum 5 5 5 5 5

Panel A of Table 1 lists the descriptive statistics for the questions relating to the extent that experience has a role in

building a competitive advantage. The first question is regarding the managers’ experience and to what extent it

helps them to predict the market change. The second question examines if this experience enables the managers to

deal with the market changes easily. The means were 4.34 and 4.30 respectively which support hypothesis 1 and

confirm the role of experience in building a sustainable competitive advantage.

Panel B of Table 1 lists the descriptive statistics for the questions relating to the extent that routine has a role in

building a competitive advantage. The first question examines if applying quality procedures is taking a big part of

company’s workforce. The second question examines if the Human Resources department is applying exhaustive

procedures in recruiting employees. The third question examines if the company conducts regular employee and

customer satisfaction surveys. The means were 3.16, 3.2 and 3.01 respectively which do not support hypothesis 2

and do not confirm the role of routine in building a sustainable competitive advantage.

Panel C of Table 1 lists the descriptive statistics for the questions relating to the extent that skills have a role in

building a competitive advantage. The first question examines if the implementation of a rigid training plan helps

the firm in raising its employees’ technical skills and/or improving their interpersonal skills which in turn helps the

firm achieve its targets. The second question examines if continuous training increases the employees’ knowledge

and awareness about their work and the market in general. The third question examines if the managers delegating

some of their authority to their subordinates will improve the subordinates’ interpersonal skills like problem solving

and decision making. The means were 4.08, 4.1 and 3.69 respectively which support hypothesis 3 and confirm the

role of skills in building a sustainable competitive advantage.

Panel D of Table 1 lists the descriptive statistics for the questions relating to the extent that firm characteristics have

a role in building a competitive advantage. The first question examines if the firm size and product portfolio have a

great impact on the firm’s performance in the market. The mean was 4.21 which supports hypothesis 4 and confirms

the role of firm characteristics in building a sustainable competitive advantage.

Panel E of Table 1 lists the descriptive statistics for the questions relating to the extent that knowledge has a role in

building a competitive advantage. The first question examines if the firm gathers new information continuously. The

second question examines if gathering enough information from several different sources, internally and externally,

leads to better decision making by the firm. The third question examines if applying horizontal knowledge

management improves the firm’s decision making process. The means were 4.34, 4.41 and 4.44 respectively which

support hypothesis 5 and confirm the role of knowledge in building a sustainable competitive advantage.

Panel F of Table 1 lists the descriptive statistics for the questions relating to the extent that technology has a role in

building a competitive advantage. The first question examines if the firm is using the most up-to-date technology in

the market. The second question examines if the updated technology helps the company develop its market position.

The third, fourth and fifth questions examines if R&D is the backbone for the company, if the company is a

technology seeker and if the company has a software based knowledge management system respectively. The means

were 2.92, 2.88, 2.79, 2.76 and 2.79 respectively which do not support hypothesis 6 and do not confirm the role of

technology in building a sustainable competitive advantage.

Table 2

The descriptive statistics for the complete sample (ranked and non-ranked companies)

Experience Routine

Skills

Firm

Characteristics

Knowledge

Technology

N Valid 160 158 160 160 160 160

Missing 0 2 0 0 0 0

Mean 4.3188 3.1308 3.9542 4.21 4.3958 2.8275

Median 4.000 3.3333 4.000 4.000 4.3333 2.3000

Standard Deviation 0.49681 0.90827 0.64481 0.788 0.38885 1.27432

Minimum 3.00 1.33 2.00 2.00 3.67 1.00

Maximum 5.00 5.00 5.00 5.00 5.00 5.00

Table 2 reports the descriptive statistics for the six dynamic capabilities for the complete sample (160 respondents),

80 respondents from top ranked companies and 80 respondents from non-ranked companies. The experience

dynamic capability has a mean of 4.31 which supports hypothesis 1 and confirms the importance of experience in

building the competitive advantage. The routine dynamic capability has a mean of 3.13 which rejects hypothesis 2

and does not confirm the importance of routine in building the competitive advantage. The skills dynamic capability

has a mean of 3.95 which supports hypothesis 3 and confirms the importance of skills in building the competitive

advantage. The firm characteristics dynamic capability has a mean of 4.21 which supports hypothesis 4 and

confirms the importance of firm characteristics in building the competitive advantage. The knowledge dynamic

capability has a mean of 4.39 which supports hypothesis 5 and confirms the importance of knowledge in building

the competitive advantage. The technology dynamic capability has a mean of 2.82 which rejects hypothesis 6 and

does not confirm the importance of technology in building the competitive advantage. As a result, examining the

complete sample which includes ranked and non-ranked companies shows that both routine and technology are not

viewed by top managers as important in building a firm’s competitive advantage.

Table 3

The descriptive statistics for the subsample of non-ranked companies

Experience Routine

Skills

Knowledge

Technology

N Valid 80 78 80 80 80

Missing 0 2 0 0 0

Mean 4.3188 2.3974 3.9542 4.3958 1.6650

Median 4.0000 2.3333 4.0000 4.3333 1.8000

Standard Deviation 0.49838 0.58371 0.64684 0.39008 0.46528

Minimum 3.00 1.33 2.00 3.67 1.00

Maximum 5.00 3.67 5.00 5.00 3.00

Table 3 reports the descriptive statistics for the dynamic capabilities for the subsample of non-ranked companies (80

respondents). The routine and technology dynamic capabilities have means of 2.39 and 1.66 respectively which

reject hypothesis 2 and 6 respectively and does not confirm the importance of both routine and technology in

building the competitive advantage in the subsample of non-ranked companies. The results from the subsample of

non-ranked companies are similar to the results from the complete sample that included both ranked and non-ranked

companies.

Table 4

The descriptive statistics for the subsample of ranked companies

Experience Routine

Skills

Knowledge

Technology

N Valid 80 80 80 80 80

Missing 0 0 0 0 0

Mean 4.3188 3.8458 3.9542 4.3958 3.9900

Median 4.0000 4.0000 4.0000 4.3333 4.000

Standard Deviation 0.49838 0.50856 0.64684 0.39008 0.56110

Minimum 3.00 2.00 2.00 3.67 2.00

Maximum 5.00 5.00 5.00 5.00 5.00

Table 4 reports the descriptive statistics for the dynamic capabilities for the subsample of ranked companies (80

respondents). The routine and technology dynamic capabilities have means of 3.84 and 3.99 respectively which

support hypothesis 2 and 6 respectively and confirm the importance of routine and technology in building the

competitive advantage in the subsample of ranked companies. These results are an indication that ranked companies

are technology seekers, update their technology including equipment and software and rely on R&D which is

considered the backbone for building a competitive advantage. This is in contrast to the non-ranked companies

which do not pay attention and/or interest to R&D which may be due to the high cost of R&D. The results also

indicate that ranked companies use rigid routines in all their internal processes in contrast to non-ranked companies

which display a lack of routine in their internal systems and/or standard operating procedures.

5. Robustness Tests

The authors use Cronbach’s alpha, which is a reliability coefficient ranging between 0 and 1, as a robustness check.

George and Mallery (2003) indicate that the closer the Cronbach’s alpha coefficient is to 1.0 the greater the internal

consistency of the items in the scale. However, they consider a Cronbach’s alpha of at least 0.7 to be acceptable. On

the other hand, Field (2005) argues that when dealing with subjective and/or psychological constructs values below

0.7 are realistic and acceptable because of the diversity of the constructs being measured.

Table 5

Panel A: Cronbach's alpha for the experience construct

Cronbach's Alpha

Cronbach's

Alpha Based on

Standardized

Items 1

Number of

Items

0.810 0.811 2

Panel B: The changes in Cronbach's alpha when items from the experience construct are deleted

Scale Mean if Item

Deleted

Scale Variance if

Item Deleted

Corrected Item

-Total

Correlation

Squared

Multiple

Correlation

Cronbach's

Alpha if Item

Deleted

Question 1 4.30 0.312 0.682 0.466 0.426

Question 2 4.34 0.275 0.682 0.466 0.515

Panel A of Table 5 reports that the Cronbach’s alpha coefficient for the experience construct is 0.81 which is an

acceptable value and is internally reliable. Panel B of Table 5 shows that both questions for the experience variable

have high reliability measures with Cronbach’s alpha and with deletion of every question individually the coefficient

does not exceed 0.81, which means that all elements of the experience variable are internally consistent and valid to

measure the construct.

Table 6

Panel A: Cronbach's alpha for the routine construct

Cronbach's Alpha

Cronbach's

Alpha Based on

Standardized

Items

Number of

Items

0.697 0.700 3

Panel B: The changes in Cronbach's alpha when items from the routine construct are deleted

Scale Mean if Item

Deleted

Scale Variance if

Item Deleted

Corrected Item

-Total

Correlation

Squared

Multiple

Correlation

Cronbach's

Alpha if Item

Deleted

Question 1 6.23 3.757 0.531 0.327 0.582

Question 2 6.17 3.977 0.426 0.187 0.716

Question 3 6.39 3.665 0.590 0.367 0.509

Panel A of Table 6 reports that the Cronbach’s alpha coefficient for the routine construct is 0.697 which is an

acceptable value and is internally reliable. Panel B of Table 6 shows that all research questions for the routine

variable have high reliability measures with Cronbach’s alpha and with deletion of every question individually the

coefficient does not exceed 0.697, except for the second question relating to the recruitment process. When this

question is deleted the coefficient increases to 0.716, this increase is significant and as a result this question must be

deleted. However, the other elements of the routine variable are internally consistent and valid to measure the

construct.

Table 7

Panel A: Cronbach's alpha for the skills construct

Cronbach's Alpha

Cronbach's

Alpha Based on

Standardized

Items

Number of

Items

0.734 0.761 3

Panel B: The changes in Cronbach's alpha when items from the skills construct are deleted

Scale Mean if Item

Deleted

Scale Variance if

Item Deleted

Corrected Item

-Total

Correlation

Squared

Multiple

Correlation

Cronbach's

Alpha if Item

Deleted

Question 1 7.79 1.829 0.655 0.484 0.536

Question 2 7.76 2.245 0.588 0.428 0.647

Question 3 8.18 1.579 0.498 0.255 0.777

Panel A of Table 7 reports that the Cronbach’s alpha coefficient for the skills construct is 0.734 which is an

acceptable value and is internally reliable. Panel B of Table 7 shows that all research questions for the skills variable

have high reliability measures with Cronbach’s alpha and with deletion of every question individually the coefficient

does not exceed 0.734, except for the third question relating to if the managers delegate to subordinates. When this

question is deleted the coefficient increases to 0.777 but this increase is insignificant and will be neglected.

However, the other elements of the skills variable are internally consistent and valid to measure the construct.

Table 8

Panel A: Cronbach's alpha for the knowledge construct

Cronbach's Alpha

Cronbach's

Alpha Based on

Standardized

Items

Number of

Items

0.627 0.626 3

Panel B: The changes in Cronbach's alpha when items from the knowledge construct are deleted

Scale Mean if Item

Deleted

Scale Variance if

Item Deleted

Corrected Item

-Total

Correlation

Squared

Multiple

Correlation

Cronbach's

Alpha if Item

Deleted

Question 1 8.85 0.631 0.492 0.254 0.443

Question 2 8.78 0.729 0.460 0.230 0.496

Question 3 8.75 0.792 0.362 0.132 0.626

Panel A of Table 8 reports that the Cronbach’s alpha coefficient for the knowledge construct is 0.627 which is an

acceptable value and is internally reliable. Panel B of Table 8 shows that all research questions for the knowledge

variable have high reliability measures with Cronbach’s alpha and with deletion of every question individually the

coefficient does not exceed 0.627, which means that all elements of the knowledge variable are internally consistent

and valid to measure the construct.

Table 9

Pearson correlations between the dynamic capabilities

Rank Knowledge

Skills

Routine

Experience

Technology

Rank 1.000

Knowledge 0.009 1.000

Skills 0.001 0.028 1.000

Routine 0.800 0.030 -0.051 1.000

Experience 0.018 0.048 0.191 -0.051 1.000

Technology 0.915 0.086 -0.089 0.767 0.040 1.000

Table 9 reports correlations between the dynamic capabilities. The results show that none of the correlations is high

enough to cause estimation problems. In unreported results, the authors ran Chi-square tests and the results indicated

that four of the six dynamic capabilities (experience, skills, firm characteristics and knowledge) have a role in

building a competitive advantage. That is to say, hypotheses 1, 3, 4 and 5 are supported by the results.

6. Discussion and Conclusion

The results support hypothesis 1 which states that ‘There is a significant relationship between the “experience”

dynamic capability and the competitive advantage sustainability in Egyptian pharmaceutical firms.’ The results

indicate that experience helps managers in analyzing market data and helps them in predicting and dealing with the

future market changes. The results reject hypothesis 2 which states that ‘There is a significant relationship between

the “routine” dynamic capability and the competitive advantage sustainability in Egyptian pharmaceutical firms.’

The results show that applying quality procedures in standard operating procedures and conducting regular

employee and customer surveys will provide the companies with competitive advantage sustainability. However,

there was no statistical internal consistency for whether applying rigid hiring procedures leads to competitive

advantage sustainability.

The results support hypothesis 3 which states that ‘There is a significant relationship between the “skills” dynamic

capability and the competitive advantage sustainability in Egyptian pharmaceutical firms.’ The results indicate that

applying a rigid training plan, continuous employee training and managers delegating to their subordinates all lead

to competitive advantage sustainability. The results support hypothesis 4 which states that ‘There is a significant

relationship between the “firm characteristics” dynamic capability and the competitive advantage sustainability in

Egyptian pharmaceutical firms.’ The results indicate that firm characteristics such as company size, number of

employees, order of entry into the market and the company’s products portfolio all lead to competitive advantage

sustainability.

The results support hypothesis 5 which states that ‘There is a significant relationship between the “knowledge”

dynamic capability and the competitive advantage sustainability in Egyptian pharmaceutical firms.’ The results

indicate that continuous collection of new information, better decision making due to gathering information from

internal and external sources and applying horizontal knowledge management all lead to competitive advantage

sustainability. The results reject hypothesis 6 which states that ‘There is a significant relationship between the

“technology” dynamic capability and the competitive advantage sustainability in Egyptian pharmaceutical firms.’

The importance of the technology dynamic capability is more apparent in the ranked companies which operate in the

Egyptian pharmaceutical market. This is contrary to the results for the non-ranked companies which do not have

viable R&D strategies due to the financial burden that accompanies R&D spending. The non-ranked companies do

not consider technology as an important dynamic capability to build a sustainable competitive advantage. However,

the ranked companies do consider that technology leads to competitive advantage sustainability.

6.1 Limitations

Designing the questionnaire and formulating the questions to target the required field was challenging, given that the

topic is dynamic and the business scene in Egypt has witnessed drastic changes due to the continuous political

upheaval that the country has been experiencing since January 2011. Another limitation of the study was the translation

of the questionnaires from Arabic to English then back to Arabic (Elsaid and Elsaid, 2012). The authors tried to

overcome this limitation by using the Werner and Campbell (1970), decentring method. A limitation with the

methodology used in the study is that using judgmental sampling could potentially cause a selection bias (Heckman,

1979). The bias in the sample arises because there is no randomization when obtaining the sample. This bias might

lead to a reduction in the generalizability of the results of the study.

6.2 Implications

This study helps to shed some light on the pharmaceutical sector in Egypt. There is very little previous research

regarding models, trends or answers to questions on the pharmaceutical market traits in Egypt. In addition there is

little information available regarding Egyptian pharmaceutical company performance, capabilities and internal

analysis. The study should also assist pharmaceutical companies in Egypt in directing their investments properly and

in determining the weaknesses in their dynamic capabilities that need to be addressed and strengthened. To the best

of our knowledge, there is no previous research that examines the importance of dynamic capabilities and their

constructs on competitive advantage sustainability in the Egyptian pharmaceutical sector.

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Appendix

Experience

Question 1:

Managers have the capability to

predict future market changes. S.D D N A S.A

Question 2:

Dealing with market changes is

somewhat easy for our company’s

managers. S.D D N A S.A

Routine

Question 1:

Applying quality procedures takes a

big part of the company’s workforce. S.D D N A S.A

Question 2:

Human Resources department is

applying exhaustive procedures in

recruiting employees. S.D D N A S.A

Questions 3:

The company conducts regular

employee and customer satisfaction

surveys. S.D D N A S.A

Skills

Question 1:

The company applies a rigid training

plan that helps it achieve its targets. S.D D N A S.A

Question 2:

Continuous training allows employees

to gain more information about their

work and the market. S.D D N A S.A

Questions 3: S.D D N A S.A

Managers delegate some of their

authority to their subordinates.

Firm Characteristics

Question 1:

The company’s size, order of entry

into the market and the product

portfolio (e.g., type of product market

and number of the products) have a

great impact on its performance in the

market. S.D D N A S.A

Knowledge

Question 1:

New information is continuously

gathered by employees. S.D D N A S.A

Question 2:

Gathering enough information from

several different sources internally and

externally leads to more accurate

decision making. S.D D N A S.A

Questions 3:

Applying horizontal knowledge

management improves the decision

making process. S.D D N A S.A

Technology

Question 1:

The company is using the most up-to-

date technology in the market. S.D D N A S.A

Question 2:

The updated technology helps the

company develop its market position. S.D D N A S.A

Questions 3:

R&D is the backbone of the company.

S.D D N A S.A

Questions 4:

The company is a technology seeker.

S.D D N A S.A

Questions 5:

The company has a software based

knowledge management system.

S.D D N A S.A

S.D: Strongly Disagree

D: Disagree

N: Neutral

A: Agree

S.A: Strongly Agree